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Six lawyers from Houston sat at a table in Washington, D.C., on March 14, responding to questions from U.S. House members investigating the collapse of Enron Corp. Even before the klieg lights turned on, an aide to the House committee that called Enron in-house and outside counsel to the hearing indicated which of the six was the prime target: former general counsel James V. Derrick. “Derrick is the biggest name. You can expect the hearing to focus on him,” said the aide, who did not want to be identified. As the hearing unfolded, the prediction came true, although Vinson & Elkins partner Joseph Dilg also took a lot of heat from lawmakers. While House Committee on Energy and Commerce members displayed an accusatory tone toward almost all the lawyers present at the hearing, most of the time they directed their questions first to Derrick. “You were the company’s lawyer,” the lawmakers reminded him frequently. “What did you think?” Sitting with Derrick at the hearing table were Rex Rogers, vice president and associate general counsel at Enron, and two partners at Vinson & Elkins: Dilg and Ronald Astin. The other two were Scott Sefton, former general counsel of Enron Global Finance, and Carol L. St. Clair, former assistant general counsel of ECT Resources Group. While they all faced stiff questioning during the five hours of grilling by members of the House committee, Derrick, who recently retired, and Dilg took the brunt of the questioning. Dilg is not only managing partner of 855-lawyer Vinson & Elkins, but he also was the lead lawyer on the Enron account and one of two lawyers who conducted a now-controversial preliminary investigation, at Derrick’s behest, into allegations of financial improprieties raised in August 2001 by whistleblower Sherron Watkins. Dilg defended the investigation into Watkins’ allegations and says the firm did not have a conflict: “We were not being asked to review our own work.” Except for a few lingering matters, Vinson & Elkins has terminated its relationship with Enron. The U.S. Justice Department indicted Arthur Andersen on March 14 for obstruction of justice after it engaged in massive document shredding last fall of Enron papers after the Securities and Exchange Commission announced it was investigating Enron. The issue of Enron’s own shredding came up during the hearing. Derrick was asked why it took him, or someone in the legal department, eight days after the SEC announced it was investigating Enron to issue a directive to employees warning them against shredding documents. “We sent out a number of memos with respect to document preservation,” Derrick said, adding that Rogers, the SEC expert in the legal department, became involved. Derrick says he was not aware of the destruction of any relevant documents. In January, when a former employee reported shredding going on at Enron, Derrick says the company’s response was to call in the FBI to investigate. For Derrick, the session was likely no fun, but he did not seem worn out by the proceedings. He began his testimony with a concession. “Of course, had I been blessed with the gift of clairvoyance, had I been permitted to gaze into the future and foresee the events that would unfold in respect of Andersen, I would have advocated the choosing of another path last August,” the former Enron GC told lawmakers. “The decisions in which I participated had to be, and were, made in the context as matters then existed. They were made in absolute good faith, with the sincere intent of ascertaining by means of a prompt preliminary investigation conducted by a world-class law firm whether a broader investigation, including the engagement of another accounting firm, was warranted.” Under direct questioning, Derrick performed in many ways better than what might have been expected of a general counsel described by subordinates as disengaged. Derrick told lawmakers he “respectfully disagreed,” with their characterization of his hiring of Vinson & Elkins for the review of Watkins’ allegations as a mistake. “What you point out as the downside was also the great advantage,” he said, adding that Vinson & Elkins did not need to take as much time as newcomers would have required to conduct the review.

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